GTAIV DLC Won't Pay in 2009

Revenues from Grand Theft Auto IV's downloadable expansions aren't expect to earn Take-Two tons of dollars in the next year.

Despite announcing profits of $97 million for the year, Take-Two Interactive's stock took a beating at the mercy of the markets when it suggested that its 2009 performance would be lower than analysts expected.

According to Wedbush Morgan securities analyst Michael Pachter, part of this decreased guidance is due to a previous over-reliance on the exclusive Xbox 360 downloadable Grand Theft Auto episodes.

"We estimate that around 7 million copies of the GTA IV disc (required for the download) were sold on the Xbox 360, and believe that no more than 5 million of these were sold to members of Microsoft's Xbox Live service," said Pachter to Gamasutra.

If the market for the expansions is only five million users and the episodes are priced at $20 per download, then Take-Two could at max earn $100 million in revenue from one episode or $200 million from both of the packs to be released in 2009.

That number doesn't sound so bad, but as Pachter points out, "the addressable market for the downloads is less than half the addressable market for the game itself." Cutting those numbers in half and you have maximum revenue potential somewhere between $50 and $100 million, assuming everyone who could download the content would.

Then there is the Microsoft royalty of $6 per copy. "Take-Two will receive no cash from sales of downloadable content until each download generates approximately $35 million in sales (around 1.75 million units)," Pachter explained.

Considering that the first offering, Lost and Damned, will be released in February and its followup in late 2009, Take-Two is unlikely to see much profit from the DLC until 2010.

Pachter added to the case against Take-Two, "The cash burn is made even more tenuous by the company's release schedule during the year with the bulk of its new releases coming in the last half of the year."